I thought this was gonna be one of those long scary hacks where I bricked the phone eventually. Not at all so. After reading through plenty of different methods and looking up a few apps, here's what happened. Note that I'm in the UK and using a T-mobile G1 with a free data plan good for 1GB a month. Pretty good really. It's so rare that stuff just works the first time, so I thought I'd post and let the world know.
On my mac:
1. I downloaded UniversalAndroot_1.6.1 from http://forum.xda-developers.com/showthread.php?t=747598
(Needs a registration to download.)
2. I plugged the Android into the Mac, mounted via USB. Strangely it didn't appear on the finder but it was visible using Disk Utility and worked fine that way.
3. I dragged UniversalAndroot_1.6.1.apk into the root directory of the Android phone.
On the Android HTC G1:
4. I downloaded Apps Installer from modmyGphone.com, ran it, and it found UniversalAndroot_1.6.1. Installed no problem though it demanded I first change my settings to allow software from 'unknown sources'.
5. Ran UniversalAndroot and consented to voiding my warranty to become root. 1 click, a few seconds' wait, and done.
6. Downloaded Barnacle Wifi Tether (free) in the Apps Market.
7. Ran Barnacle and turned it ON.
8. On the iPad: Settings -> Wifi -> select wifi server
9. Selected "Barnacle"
It just works. First 1GB free per month. Good for when the cafe's wifi is down!
Downsides: I had to void my "warranty" on the G1. It's past its payback date and I'm paying a minimal monthly fee now for it, so no problem.